Staff Working Papers

Working Paper 07-2: Home Improvements and Appreciation Rates Reflected in the OFHEO House Price Index

Author(s): ​Andrew Leventis, Senior Economist

Abstract: ​​The repeat-transactions model that is used in the construction of OFHEO’s house price index (HPI) does not perfectly control for changes in the average condition of the housing stock. If the value of home improvements is not exactly offset by the effects of home depreciation, the HPI could reflect more or less appreciation than would be reported in a true “constant quality” index. This paper attempts to measure the annual amount of “quality drift” embedded within the index.